Social Justice Ireland welcomes the opportunity to make a submission to the Oireachtas Select Committee on Budgetary Oversight on budget priorities post-Covid-19. How we plan our finances, and what we choose to prioritise post-Covid will have profound implications for the future of our economy and society. Covid-19 has exposed and exacerbated weaknesses that already existed in Irish society. These include a totally inadequate supply of social housing, a two-tier healthcare system, climate change, growing inequality, homelessness and environmental goals not being met to name but a few. However this past year has shown us that change is possible.
During the last economic crisis, Ireland's austerity approach led to insufficient investment in social services, such as childcare and education, and in infrastructure such as social housing, public transport and rural broadband. Investment is essential for a number of reasons. These include securing economic development, protecting communities with initiatives such as community healthcare networks, keeping unemployment as low as possible with initiatives such as a substantial State-led childcare programme, ensuring critical infrastructure deficits are addressed, and tackling climate change at the level required and ensure that the transition to a low-carbon economy is just and fair.
Ireland needs a new and fairer social contract. To promote human well-being and address current challenges, Social Justice Ireland proposes that such a new social contract should be based on a guiding vision and policy framework focused on producing five key outcomes. These are a vibrant economy, decent services and infrastructure, just taxation, good governance and sustainability. However, it is essential that these five outcomes be pursued simultaneously and not in sequence. Previously the focus was on the first of the five outcomes with the idea that if the economy is right everything else will follow. This simply does not happen. We need to deal with all five simultaneously. They are interdependent. Ireland needs good services and infrastructure to deliver a vibrant economy. Just taxation and good governance are required to deliver any or all of these outcomes. Sustainability is required in the economy, on the environment, and in society itself for these outcomes to be achieved. All the choices for budget 2022 and beyond set out in our presentation today, in the briefing documentation we have supplied to committee members and in the supplementary analysis are all focused on delivering these five outcomes simultaneously and in as short a timeframe as possible.
As the Government deliberates on budget 2022, it must recognise and acknowledge four major imperatives. Its primary focus should be on increasing employment and delivering infrastructure and services and not on reducing the deficit. A high level of borrowing will be needed in the next few years if Ireland is to increase employment and deliver the infrastructure and services required. This borrowing must be affordable, and it is the correct thing to do for the future of the economy and society. Action is required to increase the overall tax take and to adopt policies to broaden the tax base.
In framing the budget, Social Justice Ireland proposes that for 2022 and 2023, or until Ireland reaches full employment if earlier than 2023 which we do not believe will happen, the fiscal stance adopted by Ireland should be determined by an unemployment target rather than a deficit target, in recognition of the role domestic demand plays in sustaining domestic employment. The State should begin to plan now for the additional tax measures necessary over the long-term to finance the government expenditure required to finance universal services and income supports for all our citizens.
The first budget priority on which we want to focus is poverty reduction and social welfare. Without the social welfare system, 41.4% of the Irish population would have been living in poverty in 2019. This is the most recent year for which we have figures. Such an underlying poverty rate suggests a deeply unequal distribution of market income. In 2019, social welfare payments reduced the poverty rate by more than 28 percentage points to 12.8%. Since then, however, we have had two budgets where core social welfare rates were not increased. This is profoundly retrogressive and will lead to Ireland losing the gains it has made in tackling poverty in recent years.
Core social welfare rates should be benchmarked. More than a decade ago, budget 2007 benchmarked the minimum social welfare rate at 30% of gross average industrial earnings and today that figure is equivalent to 27.5% of the new average earnings data being collected by the Central Statistics Office. In 2021 this would equate to €222.08, implying a shortfall of €19 between current minimum social welfare rates at €203 and this threshold.
Given the importance of this benchmark to the living standards of many in Irish society and its relevance to anti-poverty strategy and approaches, it is critical that the current gap be addressed and that core social welfare rates should be increased by €19 per week over the next two years, starting with an increase of €10 per week in budget 2022.
The second budget priority we identify is housing. The pandemic highlighted both the spectacular failure of successive Governments to address the challenge of housing, particularly for the most vulnerable, and the need to think beyond privatisation to more sustainable housing. In our recently published ten-point plan to deliver housing for all, we called on the Government to implement a series of measures that would address the scale of the current challenge with the scale of response required.
Initiatives that should be contained in budget 2022 include expansion of Housing First to families, providing wrap-around services and supports for children and parents; acquisition of an equity stake in properties in mortgage distress, leaving families in situ while increasing the State’s housing stock; and, most important, the building of 14,341 social homes each year for the next ten years at an annual investment of €3.3 billion. It was interesting to read this morning's ESRI report, which more or less makes the same recommendation. We find that interesting because we have been making this exact recommendation for quite some time. We are glad to see the ESRI coming along with us at this stage.
We also need to prohibit the sale of State lands suitable for residential development and use this land to build social housing. We must address housing affordability on the supply-side rather than investing in demand-side schemes that artificially maintain high house prices. Finally in this area, one of our priorities is to close all tax loopholes for large-scale investment vehicles purchasing residential properties.
Our third priority is unemployment and particularly youth unemployment. Much of this was highlighted by Dr. Kinsella already. In our recent employment monitor we highlighted that 21% of people whose employment was affected by Covid-19 do not expect to return to the same job after the pandemic. In the absence of other employment opportunities, this suggests the potential for a transfer of these individuals from these schemes to jobseeker's payments. It is likely that will happen, so a large increase in unemployment numbers seems inevitable, with rates of between 12% and 16% of the labour force possible. Furthermore, the pandemic is also likely to reveal a large youth unemployment problem.
Budget 2022 needs to allocate resources to address these challenges and minimise the scale of the increase in unemployment and the growth of long-term unemployment. Specifically, we believe the budget should resource the upskilling of those who are unemployed and at risk of becoming unemployed through integrating training and labour market programmes and adopt policies to address the worrying issue of youth unemployment. In particular, these should include education and literacy initiatives, as well as retraining schemes. The budget should expand the age profile for apprenticeships and training programmes to include older workers who may need to reskill. It should also recognise the challenges of long-term unemployment and of precarious employment and adopt targeted policies to address these. We must also resource policies to address the obstacles that face women as they return to the labour market.
Our fourth priority for the budget concerns taxation. Budget 2022 offers an opportunity for the Government to reform some aspects of the current taxation system in the interests of enhancing fairness and sustainability. Whereas 2022 is unlikely to be a year of major taxation initiatives, it is an opportunity to make some overdue changes that would also provide some additional revenue, particularly in the area of tax expenditures.
There are a number of approaches available to the Government in reforming the tax base. The proposals we consider a priority are reforming tax expenditures, setting minimum effective tax rates for higher earners, reforming corporation tax and introducing a new minimum effective corporate tax rate, introducing a site value tax to replace the current property tax, the taxing of second homes, taxing empty houses and underdeveloped land and the taxing of windfall gains.
The committee should recommend that the tax expenditures should be prioritised and considered in this budget and that tax expenditures should be incorporated into the budget arithmetic so we get on budget not just what we always get, which is expenditure on infrastructure and services, etc., on one side but that we can also get the expenditure that is going on tax breaks, principally although not exclusively for the corporate sector. There is also substantial scope for reducing tax expenditures and there are other recommendations in the document about those expenditures.
We support a universal basic income pilot. Given our long-standing advocacy in this area of basic income, we welcomed the inclusion in the programme for Government of a commitment to examine basic income and run a pilot in Ireland during the lifetime of the current Government. In May 2021, just a few weeks ago, we hosted a seminar and published a document outlining a proposal for such a pilot. The proposal also outlined a timeline for the development, introduction and evaluation of the pilot.
There are limited cost implications associated with the pilot we have proposed and budget 2022 should commit to introducing this pilot and funding the evaluation process to accompany it. Ultimately, there are important lesson to learn from this pilot that can inform longer-term developments in this area. Any pilot must be scalable to the national level. It would involve, for example, setting the rate at which basic income is paid at a level that allows it be scaled to the national level. The recent seminar that I referred to presented a model and fully costed proposal that would allow a universal basic income in Ireland that would be revenue-neutral. It is very important.
In concluding, we have a proposal for the committee. Social Justice Ireland believes this committee plays a key role in the budget process but the need for budgetary oversight does not end when the budget is announced. We believe the committee should play a greater role post-budget to provide oversight of how the allocations are spent and to review the adequacy and efficacy of budget allocations. This would provide valuable information in advance of subsequent budgets and allow for greater clarity and focus. Social Justice Ireland would, of course, be happy to contribute to that process after budget 2022.
Social Justice Ireland believes fundamental changes are required if Ireland is to address these challenges. A new social contract is needed and it can be developed and delivered. In responding to Covid-19, the Government made the changes required to protect both society and the economy. Changes, some of which were dramatic, were delivered. The common good featured prominently in planning and delivery. The State, the only institution with the required capacity to address the pandemic, expanded to meet the challenge. This was very welcome and is in stark contrast to the approach taken after the crash of 2008. Mistakes were made in responding to Covid but lessons were learned; protecting jobs and services and a minimum standard of living were the priorities. Now is the time to build on this progress. I thank the committee.